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Analysis and Prediction:

Date of publication: March 19, 2018 | Author: Tim Clayton

Last Week’s Summary

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The main US data releases were slightly softer than expected with the main focus on consumer prices.

The CPI index increased 0.2% for February following a 0.5% gain the previous month with the annual increase at 2.2% from 2.1% previously. Core prices also increased 0.2% on the month with a 1.8% year-on-year increase.

The inflation data eased underlying inflation fears after the surge in concerns the previous month.

The retail sales data was below expectations with a headline 0.1% February decline, although there was an upward revision to January’s data while there was a subdued 0.2% underlying gain for the month.

Business surveys suggested increased confidence in the outlook with upward pressure on prices and there was notable strength in Friday’s data.

US economic data was overshadowed to some extent by political developments with further personnel changes in the US Administration. Following the departure on White House Economic Director Cohn, President Trump dismissed Secretary of State Tillerson and there were rumours of further changes including National Security Adviser.

Media commentator Kudlow was nominated to replace Cohn. Markets were uneasy surrounding underlying instability with fears over global trade wars also a key focus.

The dollar lost ground initially, although it regained some support later in the week, especially against commodity currencies and the Euro.

Trade fears persist

Concerns surrounding trade protectionism were an important market factor, unsettling the dollar and support the Japanese currency.

The US runs a substantial current account deficit which means that it needs to attract substantial capital inflows on a sustained basis.

When trade fears intensify, there increased fears that the US will find it more difficult to attract capital inflows without a weaker currency.


The UK economic data releases had no significant impact and there was a low-key response to the Spring Statement with Sterling influenced primarily by political factors.

There was further uncertainty surrounding Brexit ahead of the key March 22-23rd EU Summit. Sentiment fluctuated during the week as markets reacted to official rhetoric. There was cautious optimism surrounding a potential deal on a transition deal at the Summit, although caution inevitably prevailed. The diplomatic row between the UK and Russia also had some impact in curbing Sterling gains.

Nevertheless, the UK currency advanced significantly against the Euro as the single currency declined to 2-week lows near 0.8800 with a small net gain for GBP/USD to near 1.3950.


The final Euro-zone inflation data recorded a decline in the headline rate to 1.1% from 1.2% the previous month. ECB President Draghi remained optimistic that inflation would increase, although he also reiterated the need for patience.

Overall, the Euro lost ground as zero interest rates undermined support with EUR/USD dipping to below 1.2300.


The Swiss National Bank maintained interest rates at -0.75% at its quarterly policy meeting and warned over the risks of a trade war.

Norway’s Norges Bank also maintained interest rates at 0.5%, but stated that an increase was likely in the third quarter of 2018 which supported the krone.

Global trade uncertainty and concerns surrounding the US Administration supported the yen despite Japanese Finance Minister Aso being embroiled in a corruption scandal.

Next Week’s Forecast & Events

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US data releases are unlikely to have a major impact during the week with most attention on Wednesday’s Federal Reserve policy decision.

As far as interest rates are concerned, it will be a major surprise if there is not a further 0.25% increase. The statement will be watched closely with comments on inflation and fiscal policy having a significant impact on expectations.

The latest interest rate projections from individual FOMC members will be a very important element and Chair Powell’s first press conference will also be watched extremely closely for hints on future policy.

A central projection of four rate increases for 2018 would tend to strengthen the dollar while a cautious tone would undermine the US currency.


The week ahead will be very important for Sterling with key economic and political developments in focus.

The latest CPI inflation data is due for release on Tuesday while the latest average earnings release is due on Wednesday. These releases will be important for underlying inflation expectations and monetary policy while the retail sales release is scheduled for Thursday.

The Bank of England will also announce its latest interest rate decision on Thursday. Although no change in rates is expected and there is no inflation report at this meeting, the statement will give important clues as to whether the bank will make a move at the May meeting.  The vote split will also be significant given the possibility that some members will dissent and call for a rate hike.

Political considerations will also be very important with the EU Summit due to be held on Thursday and Friday. The UK is looking for strong progress to be made on Brexit talks with the potential for a transition deal to be agreed.

Sterling will push higher if there is a positive tone while deadlock would risk significant downward pressure on the currency.


The latest Euro-zone PMI data is due for release on Thursday and will be important in assessing whether there has been fresh growth momentum. Pricing pressures will also be important within the survey, although Euro movements are likely to dominated by global developments.


The latest Canadian CPI data is due for release on Friday with markets having priced in a relatively dovish Bank of Canada stance.

The Reserve Bank of New Zealand will announce its latest monetary policy decision on Wednesday local time with no change in interest rates expected.

The Hong Kong dollar will continue to be a significant focus given that the currency remains near the weakest permitted level within the trading band.

Currency Forecast for Next Week

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 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

Information expressed in this article and on as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.



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